‘Freebies’ vs ‘incentives’

S Subramanian

SOMETIME ago I was sent a questionnaire by a popular newsmagazine on the slew of welfare measures undertaken by the AIADMK government in Tamil Nadu. The questions were, almost all of them, entirely leading questions, designed to elicit responses that would roundly condemn the government for bankrupting its exchequer in the cause of vote-gathering populist measures. The whole thing was very annoying, and the annoyance must have been reflected in the response I sent — which, of course, was never published.   

For some years now the annual Union Budget has been furnishing information on tax concessions to the corporate sector contained in the accounting head designated as ‘Revenue Forgone’. It is held by pro-corporate critics that there really is no forgone revenue involved here: what is called ‘Revenue Forgone’ from the corporate sector is the difference between rates of taxation prescribed by the law and the rates actually sanctioned by Parliament; and insofar as Parliament is empowered to legislate these rates, ‘Revenue Forgone’ must be seen as a purely notional quantity and one, furthermore, justifiable in terms of Parliament’s considered wisdom on what constitutes the public interest. 

But then that, precisely, is the point, is it not? Why must concessions to corporates be deemed 'incentives' that are supported by the public interest, while social security provisioning for the poor deserves the nomenclature of ‘populism’, or, even more demeaningly, ‘doles’ and ‘freebies’? It is instructive that the term ‘freebies’ is generally reserved for interventions aimed at improving the population's nutritional status (subsidised food, fair price shops), health, education, mobility, access to potable water, access to fuel for energy, access to electricity, access to consumer durables (TV sets, PCs, bicycles, wet grinders, electric fans), and reverse discrimination (caste quotas/reservations in education and employment). The ambit of the term is hardly ever expanded to cover export subsidies, or exclusion of corporate perks from taxation, or 'investment incentives' to the rich, or subsidisation of diesel, or — most mystifyingly — corporate tax concessions.

Some numbers are revealing, in this context. Budget figures suggest that for the year 2012-13, the total extent of corporate tax concessions was to the tune of Rs 5.6 lakh crore, of which indirect tax concessions (by way of reduced excise and customs duties) added up to Rs 4.6 lakh crore, and the balance was accounted for by direct corporate tax concessions. How does this compare with the allegedly wildly imprudent budgetary allocations made for social security provisioning? For the year 2013-14, budgetary allocation for social security (comprising food security, fertilizer subsidy, NREGA, child development, drinking water and sanitation, Indira Awaas Yojana, maternal and child malnutrition, and other state government programmes) added up to Rs 3.6 lakh crore. The pink press and the visual media with their breathless tracking of the stock markets would have us believe that the Rs 5.6 lakh crore are incentives in the public interest, and the Rs. 3.6 lakh crore are incentives to encourage sloth and dependency. This is typical of the hubris, the shallowness, and the arrogant insensitivity of our chattering classes. 

To avoid any misunderstanding, let me get this out of the way. If the question is: “Are there fairer, more efficient ways of delivering welfare schemes — methods that involve less leakage and corruption and misdirection of resources?” then the answer, plainly, is: “Yes, of course, and without the slightest question of doubt.” This is a no-brainer. But it is one thing to acknowledge the many (undeniable) deficiencies of extant welfare schemes and seek suitable remediation for these deficiencies, and quite another to see this acknowledgement as sufficient cause for recommending the scrapping or down-sizing of these welfare schemes. The latter is a disastrously wrong slogan to employ. One mobilises public action to improve the probity and efficiency with which welfare programmes are conceived and executed. One does not mobilise public opinion to shout these programmes out of existence. Remember the outraged calls for scrapping that followed on the MG Ramachandran government's introduction of the Midday Meals Scheme in Tamil Nadu? Today there is a Supreme Court injunction that requires every state in the Indian Union to implement the scheme. This is a victory for democratic electoral politics, not a triumph of ‘freebies populism.’

Many professionals of my generation have been students of economics for only a little over forty years now, so our view is, of course, scarcely reliable; but for what it is worth, it has always been our belief that budgetary deficits can be addressed not only by reducing spending on the poor but also by reducing spending on and enhancing revenues from the rich. Why is the charge always on welfare schemes and public spending on capital creation? The pink press will not, naturally, ever speak of taxation, nor draw reference to the fact that India is an under-taxed country. Is direct taxation — in the matter of taxes on agricultural income or corporate income or wealth or bequests — anywhere near levels of even moderate fairness? Do the much-travelled sections of our upper-crust population that rave about the amenities of life in the Scandinavian countries ever pause to think, as the Scandinavian countries have thought, that public spending also requires revenue-mobilisation through taxation?

Some years ago I did a simple back-of-the-envelope calculation. The import of gold into the country was liberalised only in 1995. Data were available on the quantum of gold that had, effectively, been smuggled into the country in the five years preceding the liberalisation of gold import. The gold brought into India over 1990-95 was essentially contraband, and the property of the State. The available data suggested that if this gold were to be impounded by the State and invested for a return of 15% per annum — and why not, when the government was willing to guarantee ENRON a 16% rate of return on its investment? — then the income streams generated were of a magnitude sufficient to wipe out the bulk of consumption poverty in the country. And smuggled gold is but a minuscule part of the mountain of fraud and non-compliance which our upper middle-classes are quite happy to overlook in the cause of diagnosing an imminent bankrupting of the State’s coffers very time they sense a Food Security Bill on the horizon or a public employment programme on the anvil.

However mentally demanding it may be, a possible cure for this pathological outlook might reside in getting many of our public intellectuals and their media patrons to occasionally remind themselves of the following facts: that the State’s track record in addressing deprivation and disparity in India has been seriously disappointing; that India is a considerably under-taxed country, and one with an unwholesome record of massive tax evasion; and that yelling ‘Freebies!’at welfare spending is possibly the worst response one can think of to the two preceding facts. It constitutes shallow economics, bad political philosophy, and the worst excesses of poor taste and intemperate elitism. 

— The writer is National Fellow, Indian Council of Social Science Research